If you find yourself drowning in a sea of debt with creditors closing in on you, the most sensible thing to do is file for a bankruptcy. The question is: What type of bankruptcy should you apply for?
If you have a steady source of income, filing for a Chapter 13 is your best bet because you are allowed to have a three- to five-year repayment plan approved by the court. Although you have to pay your debt in that timespan, you can keep your property unlike with Chapter 7 where your assets get liquidated to pay for your debt.
Who are Qualified for a Chapter 13?
Based on the Chapter 13 bankruptcy code, a debtor must meet certain criteria to qualify:
- Chapter 13 is not for business entities. Only individuals or a married couple filing jointly is allowed.
- A debtor does not have a previous bankruptcy petition that was dismissed during the preceding 180 days.
- Credit counseling was received from an approved counseling agency within 180 days before filing for a Chapter 13.
- The debts incurred are within a specific range. Debts should be less than $336,900 in unsecured debt and less than $1,010,650 in secured debt.
- A debtor has enough income to cover and pay his debt after deducting certain expenses, like food and shelter.
How Does it Work?
First, complete credit counseling from an approved agency by the U.S. Trustee’s office. Your Chapter 13 attorney in Salt Lake City may be able to recommend one to you. These agencies may charge you for their services, but if you can prove that you cannot pay, they are required to provide free counseling or reduced rates. You should also be ready to pay the filing fee and file a copious amount of forms.
You would also need a repayment plan. This will contain in detail how you will pay for each of your debts. While there is no official form, many courts have their own forms. How long your repayment plan will depend on how much you make and how much you owe. You’ll need to propose a five-year plan if your monthly income six months prior to filing for a bankruptcy is above the median income of your state. If it’s lower than the median, then a three-year plan is for you.
If you were not able to finish your repayment plan, the bankruptcy trustee may adjust your plan or the court may grant you a hardship discharge. You’re entitled to a discharge once you’ve completed your repayment plan — as long as you are able to provide proof that you are current on your domestic support obligations and have finished an approved budget counseling course.
Filing for a Chapter 13 bankruptcy may affect your credit history, but defaults, unpaid debts, lawsuits, foreclosures, and repossessions will hurt even more. Go with the lesser evil and file for it if you have to.